7/26/2011

Two recent Fox News pieces

Democratic House Minority Leader Nancy Pelosi (D-Calif.) has it right. The so-called "Gang of Six" proposal to increase the debt ceiling is "not ready for prime time." The extremely short document is vague, and if six Senators can't agree on what the individual income and corporate tax rates are going to be or how much some of the cuts will be or where they will really be made, how does anyone expect the Democrat Senate, the Republican House, and President Obama to agree on anything. For a proposal whose text is just over two pages long, one wonders why they need to have a slightly longer than one page executive summary. Take some of the central proposals: -- Reform of individual income tax must generate $1 trillion in additional revenue through the elimination of tax deductions. The elimination of deductions is to be partially offset by "establishing three tax brackets with rates of 8 [to] 12 percent, 14 [to] 22 percent, and 23 [to] 29 percent."-- There is a similar reform of corporate income taxes with the new rates to be "between 23 percent and 29 percent, rais[ing] as much revenue as the current corporate tax system." . . . .

Failure to raise the Federal debt ceiling limit could "roil the financial markets and cause severe economic problems," "cause profound damage to our country," and have “dire consequences.” So wrote the Los Angeles Times, Washington Post, and New York Times. But the year was 1995, not 2011.Other ills predicted during that contentious debate were rising unemployment, reduced GDP growth, and soaring interest rates. That was at a time when President Clinton and Democrats were fighting off attempts by Republicans to link cutting the deficit to the increase in the debt ceiling and a continuing resolution on spending.Then as now, there was a widespread misperception that failure to increase the debt ceiling would produce a default: "congressional Republicans are threatening to provoke the nation's first-ever default" (Washington Times). The Los Angeles Times reported: "the first real risk of a government default could occur November 15 [1995]." Even the then Chairman of the Federal Reserve, Alan Greenspan, warned that congressional Republicans should drop their efforts, declaring: "To default for the first time in the history of this nation is not something anyone should take in any tranquil manner." . . .